Starting and running a business is a significant investment, and protecting your business finances is of utmost importance.
One of the best ways to ensure the security of your business finances is by choosing to bank with a Federal Deposit Insurance Corporation (FDIC) insured institution.
From eligibility requirements to coverage limits, this guide will provide valuable information to help you make informed decisions about protecting your business finances.
Does the FDIC Cover Business Accounts?
Yes, the FDIC covers business bank accounts.
However, the FDIC does not cover all business bank accounts. Keep reading to learn the types of business bank accounts protected by the FDIC and the eligibility requirements for these accounts.
5 Types of Business Accounts Protected by the FDIC
There are multiple types of business accounts that can be protected by the FDIC. As a business owner, you likely have more than one qualifying bank account for FDIC coverage.
#1: Checking Account:
Checking accounts are one of the most common types of business accounts protected by the FDIC.
The FDIC insures deposits in these accounts up to $250,000 per depositor, per insured bank.
Checking accounts are ideal for businesses that need to make frequent transactions and need access to their funds quickly. With a checking account, a business can write checks, make electronic transfers, and withdraw funds easily.
#2: Savings Account
Savings accounts are another type of business account protected by the FDIC. Businesses can use these accounts to save for short-term goals or to earn interest on their funds.
The FDIC insures savings accounts up to $250,000 per depositor, per insured bank.
Savings accounts are generally a safe place to store funds and are a good option for businesses that don’t need immediate access to their funds.
#3: Certificate of Deposit (CD)
Certificate of Deposit (CD) accounts are time deposits that offer a guaranteed rate of return for a specific period of time.
CDs are protected by the FDIC up to $250,000 per depositor, per insured bank.
Businesses can choose a CD with a maturity date that aligns with their financial goals and use the funds for a specific purpose, such as funding a large purchase or expansion.
#4: Money Market Deposit Account (MMDA)
Money market deposit accounts are similar to savings accounts, but they usually offer higher interest rates.
Money market accounts are protected by the FDIC up to $250,000 per depositor, per insured bank.
Businesses can use money market accounts to save for medium-term goals and earn a higher rate of return than they would with a traditional savings account.
#5: Business Interest Checking Accounts
Business interest checking accounts are a type of checking account that pays interest to the business owner.
Business interest checking accounts are protected by the FDIC up to $250,000 per depositor, per insured bank.
Business interest checking accounts are ideal for businesses that need to make frequent transactions and need access to their funds quickly, but also want to earn interest on their balances.
With a business interest checking account, businesses can write checks, make electronic transfers, and withdraw funds easily, while also earning a competitive interest rate on their balances.
Types of Business Accounts Not Protected By the FDIC
The following business bank accounts are not covered by the FDIC:
- Mutual funds and other investment products
- Stocks, bonds, and other securities
- Life insurance policies
- Trusts that are not revocable
- Foreign currency deposits
- Safe deposit boxes and their contents
Eligibility for FDIC Insurance on Business Bank Accounts
To be eligible for FDIC insurance on a business bank account, the following qualifications must be met:
- The business bank account must be opened with an FDIC-insured bank.
- The funds in the account must be within the FDIC coverage limits, which are currently $250,000 per depositor, per insured bank, for each account ownership category.
- The business entity must be a sole proprietorship, partnership, corporation, or limited liability company.
- The business bank account must be a checking, savings, or money market account.
- Depositors must provide accurate and complete account information, including the legal name of the business and the correct tax identification number.
It is important to note that the FDIC coverage limits may change from time to time, and depositors should verify their coverage and stay informed about any changes in the FDIC coverage limits.
5 Factors That Can Affect Eligibility
#1: Type of Business Entity
The type of business entity, such as sole proprietorship, partnership, corporation, or limited liability company, can affect eligibility for FDIC insurance on business bank accounts. Each type of business entity has its own unique set of requirements and limitations, and some may not be eligible for FDIC insurance.
For example, a business that is structured as a sole proprietorship is only eligible for one insurance coverage of up to $250,000, while a partnership or corporation may be eligible for multiple insurance coverages based on the ownership structure of the business.
#2: Nature of Deposits
The nature of the deposits in a business bank account can also affect its eligibility for FDIC insurance.
Deposits made for the purpose of an investment or for the benefit of another person or entity are not insured by the FDIC, even if the deposit account is held in the name of the business. Only deposits that are made for legitimate business purposes, such as payroll, rent, or other business-related expenses, are eligible for FDIC insurance.
#3: Ownership Structure
The ownership structure of a business bank account can also impact its eligibility for FDIC insurance.
For example, a business that is owned by multiple individuals may be eligible for separate insurance coverage for each owner, provided that each account meets the requirements for FDIC insurance coverage.
On the other hand, a business that is owned by a single individual may be eligible for only one insurance coverage of up to $250,000, regardless of the number of bank accounts the business holds.
#4: Bank’s FDIC Membership
The FDIC insures deposits at FDIC-insured financial institutions. A business bank account may be eligible for FDIC insurance if it is held at a bank that is a member of the FDIC.
However, if the bank is not a member of the FDIC, the deposits in the business bank account may not be insured, even if they meet all other eligibility requirements.
#5: Account Title
The title of a business bank account can also affect its eligibility for FDIC insurance.
For example, a business account held in the name of a single individual may be eligible for only one insurance coverage of up to $250,000, while a business account held in the name of a partnership or corporation may be eligible for multiple insurance coverages based on the ownership structure of the business.
How To Confirm Business Account FDIC Coverage
To confirm that a business bank account is FDIC-insured, you can check the bank's website or contact the bank directly to inquire about FDIC membership. FDIC-insured banks are required to display the FDIC logo and an official FDIC insurance certificate at each of their branches. This information should also be found on your bank statements.
You can also visit the FDIC website and use the "Bank Find" tool to search for the bank and confirm its FDIC membership status.
Special Coverage Limits for Certain Types of Business Accounts
Banks typically offer special coverage limits for certain types of business accounts that are higher than the standard limits. This is because these types of accounts often require higher levels of protection for their transactions.
Types of accounts that may qualify for special coverage limits include:
- Commercial accounts
- Merchant accounts
- Accounts with multiple owners or signatories
Commercial accounts are used by businesses to manage their finances, and they often handle large amounts of money. To provide protection for these transactions, banks may offer special coverage limits that are higher than the standard limits. This helps to ensure that business owners have adequate protection for their funds in the event of a loss or theft.
Merchant accounts are used by businesses that accept payments from customers through credit or debit cards. These accounts often handle a high volume of transactions, and they require additional security measures to protect against fraud and other types of financial crimes.
Special coverage limits may be offered to ensure that businesses are protected against losses due to fraudulent activities and other financial crimes.
Business Bank Accounts With Multiple Owners or Signatories
Calculating coverage limits for business bank accounts with multiple owners or signatories can be a complex process.
Typically, the coverage limit for these types of accounts is based on the number of owners or signatories and the type of account. Banks usually take into account the number of signatories on the account to determine the total coverage limit.
If the account has multiple owners or signatories, the bank may divide the total coverage limit among the individuals based on the terms and conditions outlined in the account agreement.